Revenue decreased 4.4% to $1,852.0 million in the reported quarter from $1,938 million in the year-ago quarter. Moreover, it missed the Zacks Consensus Estimate of $2,228 million.

Despite the earnings miss, the partnership's cash distribution per common unit was raised to $1.23 ($4.92 annualized), representing a 7% year-over-year growth. The distribution is payable on August 14, 2012. The partnership has now increased the quarterly distribution 44 times since its current management took over in February 1997.

Kinder Morgan's payout hike was fueled by growth opportunities in the midstream energy sector, with more emphasis in the natural gas shale plays as well as in the coal export business.

The partnership's distributable cash flow - a measure of its ability to make unitholders' payments - before considering certain items, was $366 million versus $324 million in the comparable quarter last year. Additionally, distributable cash flow per unit, excluding certain items, was recorded at $1.07, up 5.9% year over year.

Segmental Highlights

Products Pipelines: The business segment's earnings before DD&A and certain items fell 5.1% year over year to $166 million. The lower FERC and California Public Utilities Commission rates on its Pacific system as well as reduced volumes on CALNEV and Pacific system, led to increased expenses, which in turn weighed down on earnings. Total refined products volume was 164.3 million barrels, dipping 0.9% from the prior-year period.

Natural Gas Pipelines: Earnings before DD&A and certain items from the business jumped 24.6% year over year to $238 million. The performance was aided by Petrohawk's acquisition of a 50% interest in KinderHawk and improved contributions from the Fayetteville Express Pipeline. Further, Kinder Morgan Treating benefited from the SouthTex acquisition in December of 2011 and subsequent strong plant sales.

Overall, transport volumes moved up 6% from the year-ago quarter, mainly attributable to robust volumes on the Fayetteville Express Pipeline system and solid transport volumes on the Texas intrastate pipeline system, partly due to Eagle Ford Gathering volumes.

CO2: The segment's earnings before DD&A and certain items were $320 million, up 19.4% year over year as a result of higher oil prices, increased yield at the Katz Field and record natural gas liquids (NGL) output at the Snyder Gasoline Plant,.

Terminals: The business segment earned $183 million before DD&A and certain items in the second quarter, up 10.2% year over year.

Kinder Morgan Canada: The segment reported second-quarter earnings of $52 million before DD&A and certain items, at par with the year-ago quarter. The highlights of the segment in the quarter was a new toll agreement on the Trans Mountain pipeline, enhanced domestic throughput on the Trans Mountain and the Westridge Terminal as well as superior performance from the Platte Pipeline.

Financials

As of June 30, 2012, Kinder Morgan had cash and cash equivalents of $522 million and long-term debt of $12,154 million. Debt-to-capitalization ratio stood at 61.6% (versus 62.4% in the last quarter).

Our Take

Kinder Morgan is one of the largest publicly-traded master limited partnerships (MLP) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks.

Recently, Kinder Morgan wrapped up its agreement with a private equity and venture capital firm, Kohlberg Kravis Roberts & Co. (KKR) to purchase the latter's 50% interest in a joint venture. The transaction is also expected to be immediately accretive to the distributable cash flow of the partnership.

Other efforts made by Kinder Morgan to expand its portfolio include the commissioning of its crude oil and condensate pipeline, in order to ship the increasing oil and condensate production from the Eagle Ford, Texas region to the Houston refining hub. The partnership successfully completed the pipeline project on time and within budget.

The partnership's parent company Kinder Morgan Inc. (KMI) recently acquired El Paso Corp. (EP) to create the largest natural gas pipeline system in North America.